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    Dec. 12, 2024

U.K. Carried Interest Taxation: Increased Rates and Complexity Introduce Uncertainty for PE Sponsors

The U.K.’s new Labour government issued its first budget at the end of October 2024, announcing very significant reforms to the tax treatment of carried interest. There had been much talk on the campaign trail of closing the PE “tax loophole” and imposing full income tax rates on the industry. Once settled into power, however, the administration’s tone became more measured. The recent budget proposals would leave carried interest with a distinct tax treatment in the U.K. and keep the U.K. broadly competitive with other major PE locations. There are, however, a lot of details to be worked out with His Majesty’s Treasury, and the U.K. PE industry will be keen to secure the best possible legislative outcome by taking part in the formal consultation that is running until January 31, 2025. In a guest article, Sidley Austin partner Oliver Currall describes operative provisions of the U.K. government’s proposed carried interest reforms; specific concerns the proposal raises for PE sponsors and their respective funds; and potential ramifications for PE senior executives that currently work in the U.K. or anticipate doing so in the future. See “U.K. Treasury Outlines Potential Changes to Make Funds Regime More Attractive” (Jun. 28, 2022).

SEC 2025 Examination Priorities Feature Essential Compliance Concerns, Emerging Technologies and Several Notable Omissions

The SEC Division of Examinations (Division) recently published its 2025 examination priorities (Annual Priorities). Although the Annual Priorities are more concise than in previous years, there is a continued focus on private funds, and the highlighted issues reflect the staff’s sophistication and interest in scrutinizing more technical issues. The Annual Priorities are also notable for certain topics that were omitted, however, including advisers’ electronic recordkeeping practices and compliance with the Marketing Rule. To help fund managers use the Annual Priorities effectively to prepare for potential SEC examination scrutiny in 2025, the Private Equity Law Report interviewed experts from Simpson Thacher and Debevoise & Plimpton on potential implications for private fund exams and notable gaps in the Annual Priorities’ stated focus areas. This article summarizes the key takeaways from the Annual Priorities most relevant to private fund managers and the experts’ accompanying insights. See our coverage of the Division’s 2024 Priorities; 2023 Priorities; 2022 Priorities; 2021 Priorities; 2020 Priorities; 2019 Priorities; 2018 Priorities; 2017 Priorities; and 2016 Priorities.

Key Issues and Trends in Financing Facilities for Secondaries Funds

The use of subscription facilities in traditional PE funds is near ubiquitous, with the adoption of net asset value facilities also rapidly increasing in recent years. As sponsors realize the benefits of those forms of leverage, it is logical that they have turned their attention to applying them to another burgeoning sector of the private funds industry: secondaries funds. Those types of transactions have their own unique structures and considerations, however, which has shaped how financing facilities are used in those contexts and the respective roles of bank and non-bank lenders. Those topics were addressed in a panel at a recent Proskauer conference that featured partners Paul Tannenbaum and Cameron A. Roper, as well as a senior managing director in charge of secondaries at a fund manager, a managing director in charge of fund finance at an alternative lender and a fund solutions specialist at a bank lender. This article summarizes the key takeaways from the discussion. For other insights from Proskauer, see “Current Challenges and Constraints in Accessing Capital for PE Funds and Investments” (May 4, 2023); and “The Continuing Trend – and Potential Ramifications – of Increasing Private Fund Manager Obligations” (Sep. 20, 2022).

To Work Effectively, CCOs Need Authority, Autonomy and Information

Compliance professionals’ seniority within a company, their contact with top decision-makers and their access to necessary information are critical to success in their roles. So is the ability to influence company culture more broadly within an organization. Those topics were addressed during a panel hosted by the Practising Law Institute entitled “Empowering Gatekeepers to Enhance Compliance Practices.” Moderated by Weil partner Robert Stern, the panel featured McDermott Will & Emery partner Anne Elkins Murray; Miller & Chevalier counsel Richard Gallena; and Booking Holdings vice president Sonia Rye. This article distills some of the insights shared by the panelists. See our two-part series “Tips for Creating an EOY Compliance Checklist”: Part One (Oct. 31, 2024); and Part Two (Nov. 14, 2024).

ESMA’s Final Greenwashing Report Aims to Enhance Supervision

In May 2023, the European Securities and Markets Authority (ESMA), the European Banking Authority and the European Insurance and Occupational Pensions Authority issued a report presenting a high-level understanding of greenwashing and discussing the risks it poses. ESMA recently issued a Final Report on Greenwashing (Report) that focused on the role of supervision by the relevant E.U. Member States’ national competent authorities (NCAs) in mitigating those risks and how such supervision can be enhanced. The Report, which is based on ESMA’s survey of 29 NCAs, discusses supervision of investment management firms, investment service providers, issuers and benchmark administrators. It also addresses supervisory considerations applicable to all four sectors. This article focuses on the portions of the Report most relevant to fund managers. See our two-part series “Global Trends and Developments in ESG Regulations”: U.S. and U.K. (Oct. 17, 2024); and E.U., Middle East, Asia and Africa (Oct. 31, 2024).

Akin Welcomes Investment Funds Partner Shannon Thompson in Dallas

Akin recently announced that Shannon Thompson has joined its investment management practice as a partner in the firm’s Dallas office. Her practice focuses on representing PE and other alternative asset managers as to their fundraising efforts, governance practices, organizational structures, internal operations, regulatory developments and compliance matters. For insights from Akin, see “Advancing Diversity, Equity and Inclusion in the Alternative Investment Industry” (Sep. 19, 2024).

The PELR Will Resume Regular Publication in January

Please note that the Private Equity Law Report will not publish during the upcoming holiday period and will resume its normal biweekly publication schedule during the week starting January 6, 2025. Have a safe and happy holiday season.

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